Home » Kinder Morgan Energy Partners (KMP) CEO Rich Kinder on Q3 2014 Results – Earnings Call Transcript

Kinder Morgan Energy Partners (KMP) CEO Rich Kinder on Q3 2014 Results – Earnings Call Transcript

If you break our backlog out in the gas group, call it producer push projects are about $800 million out in the shale’s. What I’ll call first party LNG, which is really the Elba Island and related transportation expansions, about $1.6 billion. What I’ll call second party LNG, which is where we’re investing in infrastructure to serve other peoples LNG facilities is another $750 million.

Mexico is over $900 million and processing and gathering primarily in the Eagle Ford is about $300 million, so that’s about 4.4 or so of the total backlog and you can see we still got more to come with these other developments. Still haven’t seen the full effect of power and industrial PetChem. on the U.S. Gulf Coast and I think we’ll also see some additional LNG and all of those things are things that we are well positioned for.

You would also think with all of this demand side growth and what’s happening on the supply side, that we are going to see an enhanced value on our storage assets as well and that is I think also is still to come.

And also a remainder, the backlog that we have in the gas group does not yet include Northeast direct of Gulf LNG projects, which we continue to actively work. So again, more to come on our well positioned gas network.

Turning to CO2; earnings before DD&A is up $14 million or 4% year-over-year. On the volume side SACROC is up 12%, a huge performer. NGL’s are also up 7% year-over-year. Yates is down a little bit, 3.4%. Katz volumes are up 27.3% and Goldsmith is basically flat. Overall volumes on a net basis are up 9% year-over-year and really great performance in SACROC with nearly every program that we’ve put in place there for 2014, exceeding our expectations.

The disappointment from a production standpoint is Goldsmith, which is essentially flat year-over-year. I would characterize the issues here as being less about geology then they are about operations. The oil is there, it’s down the well bore, but we’ve had outages at the wells and outages associated with our pumps there. These are similar, but not identical problems that we have solved in other places, including SACROC, so we’ve got a full court press to turn things around here.

The other even bigger disappointment in the CO2 group is net oil prices taking the Midland Cushing differential into account. That differential alone more than explains CO2’s entire shortfall to its plan this year. So very strong volume performance at SACROC and the NGL’s year-over-year up-ticks at Katz. Work to be done at Goldsmith in particular.

Turning to the backlog it’s evenly split now in CO2 between the S&T and EOR parts of our business with about $2.1 billion each. We added this proportionately to the S&T portion of the backlog in the quarter-over-quarter change that we had.

Looking ahead, we are going to be focusing our attention on Goldsmith and we’ve begun hedging and looking at other physical sales strategies that we can use to manage the Midland Cushing spread issue.

On the product side, earnings before DD&A are up $20 million or 10% year-over-year. The increase came from our year-over-year earnings growth on our less refined products lines. KMCC had a big up-tick year-over-year, Southeast Terminals and Cochin and those positives more than offset declines at West Coast Terminals and Transmix.

Interestingly, refined products volumes here were up 6.8% year-over-year and up 4.1% if you exclude parkway, which we put into service late in Q3 of last year. Contrast that with the EIA, where nation wide, the increase in refined products was only 0.8% on a year-over-over basis. Plantation volumes really led the way here as demand to move U.S. Gulf Coast refined products to our markets remains very strong.

In addition, the nice increase we saw in refined products volume, the backlog shows strong demand for additional NGL condensate and crude infrastructure. If you look at the composition of the backlog here, there is a little over $0.5 billion that’s associated with UTOPIA and Cochin. Those projects and another 550 associated with crude and condensate at KMCC, including our splitter project there and another 20 or so on miscellaneous refined products and blending operations. So a good chunk of demand for crude and condensate in NGL’s in particular.

The products group also increased their backlog over $100 million, while placing into service over $400 million worth of projects during the quarter. The two big ones being Cochin and the completion of a number of KMCC related expansions and the big addition being the UTOPIA project moving ethane and ethane propane mix for NOVA, as well as potentially some other customers up to Cochin and then into the Windsor-Sarnia area. We also had another $50 million plus of additions to KMCC related expansion projects.

And I have to say overall, both in gas and especially in products, the project, the execution on the projects in this segment remains very good. They think their numbers are better with a notable exception schedule wise of a delay in the first phase of the splitter project in the Huston Ship Channel, but from a cost stand point they are hitting their numbers better.

And a remainder here too, that the backlog does not yet include the Y-Grade project UMTP or Palmetto. We continue to work on those prospects. Palmetto is in the middle of an open season right now until the end of this month and on a combined basis these projects if they come to fruition would add another $4 billion to the backlog.

Terminals; turning to Terminals. Earnings before DD&A year-over-year are up $48 million or 25%. That is the biggest; I believe the biggest ever year-over-year up-tick in performance for the terminal segment. About 70% of that is organic placing a number of projects into service versus 30% on the acquisition side, which is primarily the APT acquisition.

We did experience weakness on our coal export volumes though we do have some protection in our contracts with minimum payments, but we continue to see on the plus side very strong demand for liquids infrastructure and that’s evidenced by a net increase to the backlog of about $300 million, even while putting $200 million worth of projects into service.

The current backlog is predominantly liquids related. It breaks down – there’s about $600 million worth of crude by rail projects that are in the backlog; about $400 million associated with building out the APT tankers; another $1.4 billion that’s other liquids tankage and dock and piping infrastructure and the bulk is only about $80 million of our backlog currently.

Looking ahead, here we expect to continue to see growth in demand for the liquids infrastructure. I think that demand extends also to our existing assets in Houston and Edmonton where we continue to see nice renewal rates on that, but also extends to expansions. On the downside, we except to see continued weakness in coal volumes in the next year.

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